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Sidley Global Pricing | V4 2016 • 1 IN THIS ISSUE V4 2016 Sidley Global Pricing NEWSLETTER Visit sidley.com for more information on Sidley’s health practice. INTRODUCTION Sidley Austin LLP’s Global Life Sciences Team publishes the Global Pricing Newsletter as a periodic series updating clients and friends of the Firm on laws and regulations impacting prices for pharmaceutical and biologic products around the world. The topic of pharmaceutical and biologic pricing has stolen many headlines recently around the globe, and we have many interesting updates to share with you as we report on changes that went into effect in 2014 and 2015. In this newsletter, we trace key developments in Australia, Belgium, Canada, China, the European Union, France, Germany, India, the Netherlands, Spain, Sweden, the United Kingdom and the United States. AUSTRALIA Price-Setting Agency Ceases Operations The Australian Pharmaceutical Benefits Pricing Authority (PBPA) ceased operations on April 1, 2014, in a move by the government to improve drug access by reducing the time required to include a drug in the Pharmaceutical Benefits Scheme (PBS), the government program that subsidizes the cost of medicines for certain residents. The PBPA was an independent body that recommended reimbursement prices for drugs included in the PBS and that reviewed the price of existing PBS drugs at least once a year. Several of the PBPA’s responsibilities have been assumed by the Pharmaceutical Benefits Advisory Committee (PBAC), an independent, expert advisory group that has historically made recommendations to the Australian government regarding the effectiveness, safety and cost of medicines and whether the PBS should cover such medicines. In light of its new responsibilities, PBPA is asking manufacturers that are submitting a dossier of drug information to submit product cost information. Although PBAC will consider pricing in carrying out its evaluations, the Ministry of Health will make the final decision on price. Following a recommendation from PBAC that a product should be included in the PBS, product sponsors will have approximately five weeks to finalize their pricing submissions. Agency Approves Drugs for PBS Listing Under Pay-for-Performance Schemes In 2014, the PBAC recommended that two costly new treatments be funded in the PBS subject to conditions that are based on their performance. Specifically, in April 2014, the PBAC stipulated that the government would pay for the breakthrough cystic fibrosis drug Kalydeco (ivacaftor), but only for patients who meet identified clinical outcome improvement targets. The PBAC also recommended approval of Soliris INTRODUCTION�����������������������������������1 NEWS Australia ��������������������������������������������������1 Belgium���������������������������������������������������3 Canada����������������������������������������������������3 China�������������������������������������������������������3 European Union��������������������������������������4 France �����������������������������������������������������5 Germany �������������������������������������������������6 India ��������������������������������������������������������7 The Netherlands�������������������������������������8 Spain �������������������������������������������������������8 Sweden ���������������������������������������������������9 United Kingdom �����������������������������������10 United States ����������������������������������������11 Sidley Global Pricing | V4 2016 • 2 Sidley Global Pricing NEWSLETTER (eculizumab), used to treat atypical hemolytic-uremic syndrome (aHUS), under a Managed Entry scheme. This scheme would enable all those who suffer from aHUS to receive the drug, but approval for continuing treatment would require a demonstrated treatment response. Further, the price that the government would pay the manufacturer would vary from patient to patient (in the form of scaled rebates), depending on the benefit that each individual gained from Soliris. Both drug manufacturers agreed to proceed under these pay-forperformance arrangements. In June 2015, a similar arrangement was made for a third drug when the PBAC recommended coverage for melanoma treatment Keytruda (pembrolizumab). Keytruda will be covered under a risk-sharing arrangement until more evidence about its effectiveness comes to light. The Minister of Health approved the listing of both Kalydeco and Soliris in December 2014. The listing of Keytruda was approved in June 2015 and took effect September 1, 2015. Study Highlighting Cost Discrepancies of Combination Drugs A study published by the Medical Journal of Australia asserts that the Australian government unnecessarily spent an extra $120 million on products that combine products that are otherwise off-patent generics. This “loophole” in the PBS allows drugs that combine two off-patent generic ingredients into one pill to be sold at full price, even if the two constituent drugs are otherwise sold at lower prices. The report does note that some believe that combination products provide benefits, such as increased convenience and compliance, and are favored by patients, who only need to pay the copay once instead of twice. Recognizing the excess costs imposed on the Australian healthcare system, the Minister of Health announced in May 2015 that closing this loophole is one of the reforms it will seek in coming years. Australia is not the first country to take note of the cost of combination drugs; the United Kingdom does not purchase combination drugs because of price discrepancies. PBAC Recommends Allowing Pharmacy-level Substitutions of Biosimilar Drugs In June 2015, the PBAC recommended allowing clinicians and pharmacists to substitute biosimilar drugs in place of biologic drugs if the biosimilar has been evaluated and approved by the PBAC. The process of approving a biosimilar for substitution will be known as “‘a’ flagging.” Under the policy, substitution will be able to occur without physician involvement—although physicians are able to prevent it by selecting a choice of “brand substitution not permitted” at the time they write the prescription. While the PBAC has stated that it is important that pharmaceutical companies earn a “fair return” on their investment in new drugs, they asserted that the biosimilar substitution policy “presents an opportunity for other companies to produce [variants of biologics] which may make the drugs more affordable.” In August 2015, PBAC recommended that Inflectra (infliximab), a drug used for the treatment of certain inflammatory conditions, be added to the PBS and be approved as a biosimilar substitute for Remicade (infliximab). Sidley Global Pricing | V4 2016 • 3 Sidley Global Pricing NEWSLETTER BELGIUM Pact for the Future On July 27, 2015, the Belgian Minister for Health and the country’s leading pharmaceutical industry associations, pharma.be and Febelgen, published a “Pact for the Future” that contains a series of measures aimed at speeding up access to new medicines and controlling healthcare budgets. For innovative pharmaceutical companies, the biggest effect of the Pact will be a drop in reimbursement levels of 54.35 percent or 60.73 percent at patent expiry/ generic market entry. CANADA Canadian Federal Appellate Court Overturns Limits on Jurisdiction of Patented Medicines Prices Review Board On November 6, 2015, the Canadian Federal Court of Appeal overturned two decisions of the Federal Court that had limited the jurisdiction of the Patented Medicines Prices Review Board (PMPRB), a federal administrative agency established in 1987 by the Patent Act to regulate medicines manufactured by “patentees.” The original cases, decided on May 27, 2014, were Sandoz Canada Inc. v. Canada1 and Ratiopharm Inc. v. Canada. 2 At issue in the litigation was how broadly PMPRB’s authority over patentees could extend under section 79(1) of the Patent Act. The cases commenced after PMPRB sought to exercise jurisdiction over Sandoz and Ratiopharm, even though the manufacturers had only temporary licenses to exercise the patent and were thus not patent owners. Under the 2014 ruling in the Sandoz and Ratiopharm cases, generic manufacturers that did not hold patents and did not have monopoly power would not fall within the jurisdiction of the PMPRB and thus would not need to file their prices with it. On appeal, the Federal Court of Appeal found no basis to undercut the connection between the PMPRB and patents when the targeted drug company does not hold the patent of the drug it sells. Thus, PMPRB’s interpretation that an entity currently authorized to enjoy the benefit of the patent, even if it is just under a temporary license, is a patentee remains in effect. CHINA Price Caps Removed for Most Drugs As we have reported in previous issues, over the past several years, China’s National Development & Reform Commission (NDRC) has been actively controlling prices of drug products through a series of regulations. In 2014 and 2015, the NDRC implemented several reforms to the drug pricing system, with an aim to stabilize supply and lower prices. From April 1, 2014, the NDRC removed maximum retail price requirements for low-cost drugs. The action, which impacted approximately 280 Western medicines, including certain antibiotics, and 250 traditional Chinese medicines, was implemented to prevent shortages of low-cost drugs after manufacturers had shifted their attention to more profitable medicines, causing the supply of certain low-cost drugs to decline. The measure applied to drugs for which the daily cost is less than 3 yuan ($0.48) for Western drugs and no more than 5 yuan ($0.80) for traditional medicines. 1 Cour fédérale, 05/27/2014, Sandoz Canada Inc. v. Canada, 2014 FC 501 (hereinafter Sandoz). 2 Cour fédérale, 05/27/2014, Ratiopharm Inc. v. Canada, 2014 FC 502 (hereinafter Ratiopharm). Sidley Global Pricing | V4 2016 • 4 Sidley Global Pricing NEWSLETTER On May 4, 2015, the NDRC announced that it would revamp China’s drug pricing system by removing government-fixed prices for almost all drugs, effective from June 1, 2015. Specifically: ■ For drugs purchased through the country’s medical insurance funds, the funds will formulate rules for setting the drug prices. ■ For patented drugs and drugs with only one manufacturer, the government will establish an open and transparent, multistakeholder drug price negotiation mechanism. ■ Prices of blood products not covered by medical insurance, vaccines purchased through government procurement channels, AIDS drugs and contraceptive drugs will be decided through negotiation or bidding. ■ Narcotics and class-I psychotropic drugs will continue to be subject to government-fixed prices, including maximum ex-works prices and maximum retail prices. ■ For all other drugs, the manufacturer may set the price. At the same time, the NDRC announced that pricing authorities will increase their focus on unfair pricing strategies, cautioning that authorities will strictly investigate and punish unfair pricing and anticompetitive behaviors. Reform to Local Drug Procurement Programs From 2015, the National Health & Family Planning Commission (NHFPC) launched pilot programs for local drug procurements. Previously, for drugs sold to public hospitals, drug manufacturers participated in provincial procurement programs organized by provincial governments. Drug prices were fixed through a competitive bidding process, and drug distributors could sell drugs to public hospitals only at these prices. In 2015, the NHFPC launched pilot drug price negotiation programs in a few selected provinces. In these provinces, after the provincial drug procurement programs have ended and the drug prices have been “fixed,” drug manufacturers and distributors are required to have second-round negotiations with public hospitals, public hospital alliances or local governments, and these negotiations usually result in further, substantial reduction of drug prices. This new mechanism has created significant pressure on drug manufacturers and distributors to reduce drug prices. EUROPEAN UNION Update on Adaptive Licensing Pilot Project In November 2015, the European Medicines Agency (EMA) released guidance specifying criteria for participation in its adaptive licensing project (now referred to as “adaptive pathways”). Under the adaptive pathways model, medicines can receive either: (i) initial approval in a well-defined patient subgroup with a high medical need, with subsequent widening of the indication to a larger patient population; or (ii) an early regulatory approval, where uncertainty is reduced through collection of postapproval data. EMA originally announced the pilot project in March 2014 in an effort to explore how adaptive licensing could streamline the process for bringing a narrow subset of products to market. Specifically, to be eligible for adaptive pathways, drugs must be intended to meet an unmet need and supported by evidence in well-defined subpopulations. Sponsoring manufacturers accepted to the pilot program must commit to further studies after initial licensing is granted. As of November 2015, EMA had accepted 19 proposals to its pilot program but will continue to welcome additional “well-developed” proposals. In its recent guidance, EMA laid out a number of conditions to prospective sponsors. The first condition is that companies must Sidley Global Pricing | V4 2016 • 5 Sidley Global Pricing NEWSLETTER intend to pursue either a staggered or conditional marketing authorization. Second, sponsors must plan to record real-life data to supplement existing clinical trial data. Third, companies must involve patients and health technology assessment (HTA) agencies in developing their drug development plans. Finally, applicants must show that traditional pathways are not suitable for the product in question. While adaptive pathways may help facilitate timely patient access to important therapies, some have expressed concern about its potential pricing effect on manufacturers. In particular, adaptive pathways may lead to “adaptive pricing,” where drug prices increase with each incremental expansion of the drug’s indication. Manufacturers are concerned about the instability that could result if government reimbursement does not increase in accordance with retail prices. Although EMA has not yet addressed the potential effect on pricing and reimbursement, evaluation of the adaptive pathways project will be conducted once at least six products have received parallel scientific-health technology assessment advice. Kickoff Meeting for EURIPID The kickoff meeting for the EURIPID database was held on November 19, 2015. EURIPID is a project, sponsored by the European Commission, to exchange drug price information between Member States. A database of drug prices across the European Union and specific additional countries, such as South Africa and Israel, has already been set up. Data fields include ex-factory price, wholesale price, gross and net retail price, dosage form, anatomical therapeutic chemical, route of administration, international nonproprietary names and strength, and number of units. The database is currently limited to publicly available information. For example, in countries where markups are not regulated, the ex-factory price is not included. By contrast, the database already includes information that is not available for free. Some stakeholders at the kickoff meeting advocated broadening the database further and making it available to the public. Industry is concerned that the database will become a tool for the expansion of external reference pricing and will reduce the possibilities to maintain differential pricing and offering better deals to European Union countries with lower gross domestic product. FRANCE Pending Implementation of Biosimilar Substitution As discussed in Volume 3, the French Parliament has enacted legislation that will permit pharmacists to substitute biosimilar products for more expensive prescribed biologicals provided that substitution is limited to patients initiating treatment, that the prescribing physician does not explicitly prohibit substitution and that the pharmacist notifies the prescriber of the substitution. Although the new law took effect on January 1, 2014, an implementing decree is still pending. A government-established task force—composed of stakeholders from industry, physicians, pharmacists, patients and the Ministry of Health— was convened to provide recommendations on the decree. Although discussions were scheduled to conclude in June 2014, a decree was not released. Inflectra, a biosimilar version of Remicade (infliximab), has been approved for substitution in France. Inflectra is approved for treatment of rheumatoid arthritis, Crohn’s disease and psoriasis. In July 2015, its manufacturer secured a contract from France’s Assistance Publique–Hopitaux de Paris, the public hospital system serving the city of Paris, by offering Inflectra at a 45 percent discount off the price of the branded drug. Patients who have already been treated with Remicade may continue receiving it, but newly initiated treatments will use Inflectra. Sidley Global Pricing | V4 2016 • 6 Sidley Global Pricing NEWSLETTER Law Expanding Reimbursement for Unapproved Uses Takes Effect A French law that will permit reimbursement for drugs not approved by regulatory authorities as a treatment for a patient’s condition, even where approved treatments are available, took effect September 1, 2015. Policymakers cited financial impacts as justification for the law, noting that reimbursement for unapproved drugs, which often cost less than approved products, can help cut national healthcare costs. The law specifically cites agerelated macular degeneration (ARMD) treatments, which, although not approved by certain regulatory authorities for treatment in age-related macular degeneration, may cost less than one-tenth of the cost of other products approved for the treatment of the condition. After the law was passed in 2014, the French Agence nationale de sécurité du médicament et des produits de santé (ANSM), the public body responsible for assessing risks of medical products, explicitly supported the unapproved use of the cancer drug Avastin (bevacizumab) for the treatment of ARMD. ANSM reached this decision on March 24, 2015, even though two authorized ARMD treatments are available on the market. Avastin costs about 30 times less than other, approved ARMD treatments. On the date the law went into effect, the European Federation of Pharmaceutical Industries (EFPIA) filed a complaint with the EU Commission, which is still pending, arguing that the French law violated EU law and, because it puts lawmakers in charge of medical decisionmaking, threatens patient safety. The development in France coincides with a similar measure passed in June 2014 by the Italian Medicines Agency (IMA), the agency tasked with setting pharmaceutical reimbursement in Italy. The IMA also adopted a measure that permits reimbursement for Avastin for the treatment of ARMD, even though the EMA has not yet approved the drug for the treatment of ARMD. EFPIA, the European Confederation of Pharmaceutical Entrepreneurs and the European Associate for Bio-Industries jointly filed a complaint with the EU Commission in February 2015 to block the Italian law. GERMANY Increased Emphasis on Cost in New Health Technology Assessment Methodology On April 22, 2015, the German technology assessment body, the Institute for Quality and Efficiency in Healthcare (IQWiG), published a new version of its general methods paper, which includes a substantial focus on cost-benefit assessments as compared to previous drafts. The new paper now devotes an entire chapter to cost-benefit assessment, which currently is to be carried out in limited circumstances, such as when a pharmaceutical company whose drug has undergone an early benefit assessment does not agree with a decision by the Federal Joint Committee (GBA) that the drug does not demonstrate added value compared to a comparator product.3 IQWiG’s summary of the paper states that GBA can commission IQWiG to conduct a costbenefit assessment and that comparison of cost-benefit ratios of medical technologies should provide a basis for reimbursement decisions. The paper also addresses timelines for cost-benefit assessments, the selection of comparator therapies, and the methods that can be used to demonstrate cost or benefit. IQWiG has also published a detailed summary and evaluation of the comments received after it published a draft version of these methods. 3 As discussed in previous volumes, if the GBA determines that a drug does not provide additional benefit, the drug will be subject to a reference price, or, if no reference price group exists, the National Association of Statutory Health Insurance Funds (GKV-Spitzenverband) will negotiate a refund rate with the manufacturer. If the manufacturer and GKV-Spitzenverband cannot reach an agreement, the proceedings will go to arbitration. Sidley Global Pricing | V4 2016 • 7 Sidley Global Pricing NEWSLETTER Price Freeze on Drugs Extended until 2017 Germany’s price freeze on drugs, which was set to expire at the end of 2013, has been extended through 2017. Prices for all drugs except those covered by internal reference pricing must be maintained at their 2009 levels until the end of 2017. As part of the legislation, Germany will also be able to record negotiated, confidential drug prices as the drug’s official reimbursement price instead of relying on the manufacturer’s list price. This has drawn criticism from the pharmaceutical industry for the widespread effects it may have because Germany is one of the most frequently used countries in reference pricing schemes of other nations. INDIA State-funded Plans to Provide Free Medicines On Feb. 25, 2015, the Ministry of Health and Family Welfare announced that financial support would be provided to the states to strengthen their healthcare delivery systems and support the provision of free drugs to those who access public health facilities. The number of free drugs provided varies from state to state, but some states have reportedly been providing hundreds of drugs at no cost. In addition to such state initiatives, the federal government, which has been working toward a policy to provide Indian citizens with free medicines since 2012, had been assessing proposals to allow 50 drugs to be dispensed for free as part of a universal health insurance scheme. In Volume 3, we discussed that this plan had been stalled due to a lack of funding. In April 2015, the government abandoned the plans for this altogether. Problems Setting Drug Pricing India’s National Pharmaceutical Pricing Authority (NPPA) has encountered difficulties setting the price of drugs due to a lack of information about drug prices. India had begun a price capping policy after the Drug Price Control Order of 2013 authorized the NPPA to regulate the prices of 348 drugs on the National List of Essential Medicines (NLEM). On November 2, 2015, the NPPA released a list of 98 medicines for which it was unable to fix prices. It has appealed to state governments and regulatory bodies for information to help establish these prices. In the last 18 months, India has been involved in a number of legal disputes about the scope of NPPA’s authority to implement price caps. Historically, NPPA had imposed price limits only for drugs included on the NLEM. In May 2014, NPAA adopted the position that it could also cap prices on nonessential vaccines and single-ingredient drugs used to treat cancer, HIV, tuberculosis and other diseases if NPPA considered it necessary to do so in the public interest. In response to a legal challenge by the pharmaceutical industry, India’s Department of Pharmaceuticals withdrew NPPA’s authority to regulate prices of nonessential drugs in September 2014. While the guidelines were in effect, NPAA implemented price controls on an additional 108 medicines. Despite the fact that the price caps implemented between May and September of 2014 were added without proper authority, a court ruled that they can remain in effect unless the government takes affirmative action to remove the price caps. Sidley Global Pricing | V4 2016 • 8 Sidley Global Pricing NEWSLETTER THE NETHERLANDS New Price Control Method for High Cost Treatment On June 9, 2015, the Netherlands introduced a new method of price control for costly drugs used in hospitals. Dutch patients are entitled to “state of the art” care in hospitals, which includes having access to new, expensive drugs. When the Dutch Ministry for Health was informed that the potential cost of Opdivo (nivolumab) for lung cancer could be up to €200 million, it decided to place Opdivo on a list of treatments that are not regarded as reimbursable “care.” That list includes aesthetic surgery, liposuction and now one medicinal product, Opdivo. The Ministry stated that if the manufacturer were to offer a favorable price for Opdivo, the product could be taken off the exclusion list. The Opdivo decision has not been challenged, and therefore the compatibility of this new price control method with the Transparency Directive (89/105/EEC) and with Dutch law has not yet been tested in court. The political signal issued by the Ministry in making this decision is clear: the willingness to pay for new, expensive drugs is limited. This signal is consistent with the Ministry’s initiatives to set up joint health technology assessment and potentially joint price negotiations involving multiple Member States to reduce the budgetary burden of new products. These initiatives feature prominently on the Dutch government’s agenda for the Presidency of the EU, which it holds in the first half of 2016. Netherlands, Belgium and Luxembourg: Joint Assessment On April 20, 2015, the Dutch and Belgian Ministries of Health announced an initiative for “joint negotiations” to push down prices for new, expensive drugs, including orphan drugs. In September 2015, they were joined by Luxembourg. The project has been scaled back to joint “assessment” (as opposed to joint negotiations) and has been slow to get off the ground. There has been a pilot assessment for one orphan drug, but that pilot failed because the joint assessment could not be fitted within the strict Belgian rules of procedure. However, the slow start to this joint assessment does not mean it will not be pursued. The Dutch government has explicitly noted that prices for new drugs appear unconnected to the cost of development and production and are insufficiently transparent. Further initiatives are thus expected. SPAIN Reference Group Pricing On March 21, 2014, the Spanish Minister of Health, Social Services and Equality approved Royal Decree 177/2014, regulating government reimbursement of medicinal products through a reference price system and the homogenous group system. Royal Decree 177/2014 represents the first time the Spanish reference pricing system and the homogenous group system are regulated by a single set of regulations, thus offering clarity on how these systems interact. Royal Decree 177/2014 also introduces three major changes to Spain’s reference pricing regime. First, with regard to the creation of reference groups, Royal Decree 177/2014 does not impose the requirement that each reference group contain at least one generic or biosimilar product if: (1) the main active ingredient of the drug in question has been authorized in Spain or any other EU Member State for a period of at least ten years, and (2) there is at least medicine in the group different from the originator product and its licenses. Second, Royal Decree 177/2014 sets forth rules to calculate the reference price for a product based on the lowest cost of daily treatment of the products within a particular reference group. Royal Decree 177/2014 specifically sets a minimum reference price of €1.60 in the case that the calculated reference price falls below that threshold. However, there is a special rule for Sidley Global Pricing | V4 2016 • 9 Sidley Global Pricing NEWSLETTER determining the price of drugs with special dosages or for serious diseases, or for products for which pricing has been reviewed in the previous two years and, if subjected to reference pricing, would not be economically viable. Third, Royal Decree 177/2014 sets forth rules regulating the system of homogeneous groups of drugs. Each homogeneous group contains drugs that are: (1) funded by the Spanish National Health System, (2) have the same active ingredient, dose, content, dosage form and method of administration, and (3) are interchangeable when dispensed. Once a homogeneous group is formed, the lowest price of all drugs within the group becomes the “minor price.” The minor price will be updated quarterly, and manufacturers are incentivized to reduce the price of products within a homogenous group to the minor price because of dispensing rules that favor the product with the lowest price within a given homogenous group. Reference Pricing for Biosimilars Ministerial Order SSI/1225/2014 (the Order), which was approved on July 10, 2014, implements the reference pricing system changes set forth in Royal Decree 177/2014. Additionally, the Order creates reference groups for biosimilar products. Prior to its implementation, a pharmacist was not allowed to substitute one biological drug for another unless expressly authorized to do so by the prescriber. In response to this development and recent EU directives and guidelines on biosimilars, the Spanish Pharmaceutical Industry Association (Famaindustria), representatives of the Spanish Agency for Medicines and Health Products and other interested parties have urged the Spanish government to establish clear regulations on biologics and biosimilars. Specifically, experts have called for regulations to differentiate biosimilars from generics and, further, to exclude biosimilars from the country’s reference price system. Spain has yet to introduce a specific regulatory framework for biosimilar products; therefore, it remains to be seen whether these policies will be implemented. SWEDEN Judicial Decision Limiting County Councils’ Pricing Authority On June 12, 2014, Sweden’s Administrative Court of Appeal held that county councils are prohibited from negotiating discounts with manufacturers for drugs that are reimbursed under the Dental and Pharmaceutical Benefits Agency (TLV), Sweden’s reimbursement agency, explaining that to conclude otherwise would be a violation of EU law. According to the court, the EU’s Transparency Directive regulates transparency in pharmaceutical pricing and the national reimbursement system. The court was concerned that discount arrangements executed at the county level, specifically for drugs reimbursed by TLV, would result in the creation of a “double parallel reimbursement system.” Because the countylevel agreements are not regulated by any national legislation, the court found it problematic that such discount arrangements would not be subject to the Directive, which requires, among other things, transparency and appeal rights. While the court’s decision establishes a bright-line rule, it remains unclear how existing discount arrangements for drugs within the TLV reimbursement system would be treated. Skane, the county council involved in the litigation, has since appealed to the Supreme Administrative Court, where it is awaiting a decision on leave to appeal. If the ultimate outcome does not align with the government’s plan for reimbursement, the government has indicated that it may consider passing new legislation regulating county councils. Sidley Global Pricing | V4 2016 • 10 Sidley Global Pricing NEWSLETTER Cooperation Framework to Negotiate Pharmaceutical Prices While it appears that county councils may be prohibited from negotiating prices on drugs reimbursed by TLV, county councils can enter into separate pricing agreements with manufacturers for products that have been denied reimbursement by the TLV. However, the prices negotiated by county councils often vary depending on the population and general financial position of the county. Thus, on May 15, 2014, the Swedish Association of Local Authorities and Regions (SKL) issued a recommendation that all member county councils participate in a “cooperation framework” that would permit the councils to enter into group negotiations for setting such pharmaceutical prices. Under SKL’s proposal, each county council electing to participate in the cooperation framework would join to form a single, negotiating delegation that, in alliance with the TVA, would negotiate prices with manufacturers for products that monopolize the market and where traditional public procurement has been ineffective. Such framework is expected to provide faster patient access to new medicinal products, greater equality between county councils and enhanced monitoring of market conditions. Orphan Drug Denied Reimbursement in Favor of Unapproved Uses of Other Drugs A manufacturer submitted information to the Swedish HTA agency TLV in early 2015 for a drug indicated for chronic thromboembolic pulmonary hypertension (CTEPH). CTEPH is an orphan disease that is fatal when untreated and for which there are no alternative therapies. The drug in question is also approved for treatment of pulmonary arterial hypertension (PAH), a condition for which alternative treatments are available. In Sweden, a drug can obtain reimbursement if no other treatments are considered significantly more effective. In its decision denying reimbursement for all but a small subset of patients, the TLV explained that the fact that a treatment is the only approved treatment for a condition does not mean that the drug is guaranteed to obtain a positive reimbursement decision. Its reasoning was based on the fact that the alternative PAH treatments are frequently used off-label to treat CTEPH. The drug was thus granted reimbursement only in that subset of CTEPH patients that did not respond to off-label PAH treatment. This appears to be the first instance of a reimbursement decision in Sweden in which a product’s off-label use has been used as the comparator in the TLV assessment. The manufacturer has appealed the TLV reimbursement decision to Sweden’s administrative court. As of December 2015, a ruling had not been issued. UNITED KINGDOM Updates on Voluntary Pricing Scheme In April 2014, the Department of Health released its “Twelfth Report to Parliament” regarding the Pharmaceutical Price Regulation Scheme (PPRS), which provides limits on overall expenditures on branded medicines purchased by the National Health Service (NHS) through a number of pricing mechanisms. As discussed in Volume 3, the PPRS is a voluntary scheme that pharmaceutical manufacturers may choose to follow when pricing pharmaceuticals for purchase in the United Kingdom, in lieu of statutory schemes under sections 262(2) and 263(7) of the National Health Service Act of 2006. The updated PPRS was implemented on January 1, 2014, and 134 companies chose to join it. The Twelfth Report to Parliament provides a status update on the functionality of PPRS for the first quarter since implementation. In August 2015, the PPRS was amended to apply a new methodology for including cancer drugs. Under the addendum, branded cancer drugs funded through the Cancer Drug Fund Sidley Global Pricing | V4 2016 • 11 Sidley Global Pricing NEWSLETTER (CDF) will count toward the manufacturer’s overall spending under the PPRS. The CDF provides access to cancer treatments that have not obtained approval by the pricing body National Institute for Health and Care Excellence (NICE). New Funding Strategy for Earlier Access to Cancer Drugs NHS and NICE have issued a proposal designed to allow NHS patients earlier access to cancer drugs and initiated a consultation period on the proposal that will accept comments from November 19, 2015, to February 11, 2016. Under the proposal, all cancer drugs will receive a “yes,” “maybe” or “no” decision within 90 days of receiving EMA approval. Those that receive a preliminary decision of “maybe” will receive CDF funding for a limited time. During this time, additional evidence on the effectiveness of the drugs will be collected. When the allotted trial period has expired, the drug will proceed through a NICE appraisal. With a positive recommendation, the drug will transition to routine use. If the therapy receives a negative recommendation, it will no longer be available through the CDF and can be accessed only through individual patient requests. According to the request for comments, changes to the CDF will take effect in April 2016. The hope is that this proposal will allow for a better use of CDF funds on those therapies that are promising while enabling the collection of additional data. UNITED STATES Increased Attention on Pharmaceutical Drug Pricing Recently, the issue of drug pricing has garnered significant attention in the United States due to price increases of existing treatments and the sticker price of certain classes of new drugs. Daraprim (pyrimethamine) and cycloserine, two drugs that have been on the market for decades, gained attention when the manufacturers planned to significantly increase their prices. The planned price increase for cycloserine was called off in the wake of the outrage that followed the manufacturers’ original announcement. Further, the price tags of several new blockbuster drugs, including multiple drugs indicated to treat hepatitis C, have drawn criticism. These incidents have led to increased congressional and regulatory attention on the topic of drug pricing. For instance, on November 20, 2015, the Department of Health and Human Services (HHS) hosted a pharmaceutical forum entitled “Innovation, Access, Affordability and Better Health.” The forum was intended to generate discussion on trends in the pharmaceutical industry, such as the fact that 65 percent of spending on new drugs is for specialty drugs and that the system is seeing more price increases for drugs that are “not new.” The high cost of hepatitis C drugs came up frequently, but other drugs, such as PCSK9 drugs for lowering LDL cholesterol, were also referenced. The program acknowledged that finding solutions to improve drug access and affordability would require input from all stakeholders. The Senate Aging Committee also held a hearing, on Dec. 9, 2015, to investigate recent instances of price increases affecting off-patent prescription drugs. Several manufacturers have received letters from the Department of Justice focused on their price reporting. Two manufacturers received letters in which the government probed their price reporting under the Medicaid Drug Rebate Program. Another government inquiry concerned the manufacturer’s contracts with pharmacy benefit managers and Medicare Part D plans. On November 5, 2015, the Centers for Medicare & Medicaid Services (CMS) sent letters to state Medicaid programs to express concerns about continuing access restrictions for hepatitis C drugs and to encourage the agencies to negotiate with pharmaceutical companies to obtain discounts. Also on November 5, CMS circulated letters to a number of manufacturers requesting information on performance-based discounts these manufacturers Sidley Global Pricing | V4 2016 • 12 Sidley Global Pricing NEWSLETTER have secured with private insurers in the hopes that this will facilitate the development of new discount arrangements for hepatitis C drugs for Medicaid beneficiaries. On December 1, 2015, the Senate Committee on Finance released a report concluding an 18-month investigation into one manufacturer’s pricing strategies. The report focused on two of the manufacturer’s hepatitis C treatments. The report concluded that the manufacturer’s pricing strategy had maximized revenue at the expense of broad patient access. According to the report, the manufacturer had priced the first of its two hepatitis C treatments according to cost-per-cure calculations, although it could have priced it lower to generate savings for payers and increase access. The report asserted that the list price of the first of the manufacturer’s hepatitis C treatments was an attempt to raise the price floor for future treatments. The report also purports that the manufacturer underestimated the price level at which payers would impose significant access restrictions. When a competitor’s drug entered the market at the end of 2014, the increased competition helped push down prices. The Senate report noted that concerns about the high price of innovative single-source drugs remain, especially when there is a significant time lag between when the innovator drug appears and when a competitor is introduced into the market. Legislators and presidential candidates have also noted concerns about high prices. Some have put forth proposals to address this issue, suggesting that drug costs may be a topic that will continue to garner attention in the lead up to the November 2016 elections. Introduction of Biosimilars On September 3, 2015, the first biosimilar drug in the United States was launched. On that date Zarxio (filgrastim-sndz), the biosimilar to cancer drug Neupogen (filgrastim), was released. Neupogen’s manufacturer had filed a series of lawsuits to block the introduction of Zarxio, which had received FDA approval in March 2015, and thus delayed the biosimilar’s introduction until September. On March 30, 2015, CMS issued several guidance documents addressing how biosimilars will be treated for reimbursement and rebating purposes under Medicare Part B, Medicare Part D and the Medicaid Drug Rebate Program. Under Medicare Part B, CMS will use the average sales price (ASP) of the biosimilar product plus 6 percent of the ASP for the higher-priced reference product in setting the reimbursement price. In the time between the biosimilar’s launch and when pricing data is available, reimbursement for the biosimilar will be set at the manufacturer’s wholesale acquisition cost. Additionally, all biosimilars of the same reference biologic product will be assigned the same J-code for ASP reporting purposes, and reimbursement will be based on the average of these values, potentially leading to a race to the bottom for biosimilar prices. CMS also explained that it will allow a Medicare Part D plan sponsor to place a biosimilar onto its formulary at any time but will require a case-specific review if a sponsor wishes to replace a reference product with a biosimilar on the plan formulary. CMS will regard biosimilars as single-source innovator drugs (because they do not meet the definitions of generics or multiple-source drugs), and thus Medicare beneficiaries will be subject to higher copayments for biosimilars. Guidance under the Medicaid Drug Rebate Program also noted that biosimilars fall within the definition of a single-source drug. CMS clarified that manufacturers thus would be responsible for paying higher rebates based on the formula for brand-name products rather than the rebate formula for generic drugs. Many states have also considered and/or implemented legislation regulating biosimilars. Common features of this state legislation include requiring that a drug be approved by the Food and Drug Administration as “interchangeable” before it may be substituted, stipulating that physicians be able to prevent switching by writing “brand medically necessary” on prescriptions, requiring that pharmacists notify patients if a substitution is made and granting immunity to pharmacists who make substitutions in accordance with the state’s law on biosimilars. Sidley Global Pricing | V4 2016 • 13 Sidley Global Pricing NEWSLETTER Federal Court Rules against HRSA’s Interpretation of 340B Orphan Drug Provision and Release of Draft 340B “Mega Guidance” As discussed in Volume 3, on June 22, 2013, the Health Resources and Services Administration (HRSA) issued a Final Rule impacting the provision of orphan drugs under the 340B Program (the 2013 Final Rule). The 2013 Final Rule aimed to implement part of the Affordable Care Act that exempted from 340B ceiling prices sales of orphan drugs provided to certain covered entity types. However, HRSA’s 2013 Final Rule implemented this statutory provision narrowly by stating that the exclusion from the 340B ceiling price for orphan drugs applied only when the drug is used “for the rare condition or disease for which that orphan drug was designated.” This interpretation, which was reiterated in HRSA’s July 23, 2014, “interpretive rule,” led to a drawn-out legal battle, involving two lawsuits, between HRSA and the Pharmaceutical Research & Manufacturers of America. On October 14, 2015, the U.S. District Court for the District of Columbia ruled against HRSA over the proper interpretation of the provision. The ruling, a decisive victory for the pharmaceutical industry, found that HRSA’s interpretation of the orphan drug exclusion conflicted with the plain language of the statute and was thus invalid. Notably, the court took the additional step of stating that HRSA’s interpretation deserved no deference because HRSA lacks authority to issue regulations with the force of law in this context. Separately, on August 27, 2015, HRSA released its draft “mega guidance” on the 340B Drug Pricing Program. The proposed guidance addresses numerous aspects of the 340B program, including clarifying the definition of “covered outpatient drug,” narrowing the scope of who qualifies as a 340B “patient” and setting forth exceptions to the group purchasing organization prohibition. In its Fall 2015 Regulatory Agenda, HHS indicated that the Notice of Final 340B Program Omnibus Guidelines will not be issued until September 2016. CMS Issues Final Rule With Comment Period Addressing Medicaid Drug Reimbursement and Rebates Nearly four years after issuing the proposed rule, on January 21, 2016, CMS published an advance copy of the much-anticipated Medicaid Program Covered Outpatient Drug Final Rule, or the 2016 AMP Final Rule. While it does not address all outstanding questions raised by the Patient Protection and Affordable Care Act’s amended definition of average manufacturer price, the 2016 AMP Final Rule is substantial and responds to the many comments to CMS’ 2012 AMP Proposed Rule. A separate Sidley Update is dedicated to discussing the 2016 AMP Final Rule. Sidley Global Pricing NEWSLETTER Sidley Global Pricing | V4 2016 • 14 sidley.com Sidley Austin provides this information as a service to clients and other friends for educational purposes only. It should not be construed or relied on as legal advice or to create a lawyer-client relationship. 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